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GENERAL DYNAMICS ALVIS BID GIVES EUROPE A WAKE UP CALL!

17 Mar 04. The news that BAE SYSTEMS may hang on to its minority stake in Alvis (See: RECOMMENDED CASH OFFER FOR ALVIS PLC BY GENERAL DYNAMICS, BATTLESPACE ALERT Vol.6 ISSUE 5, March 11th 2004) may be more of a sign of desperation rather than a planned strategic move. The purchase of the stake in Alvis from GKN at a favourable price of 185p a share was seen as a blocking move to prevent such a deal as GD has proposed taking place. This would then have put BAE and Alvis in the driving seat to win and then Prime the multi-billion pound U.K. FRES requirement and thus BAE into a strong position as manager of the U.K. Network Enabled capability managing vital U.S. technology and deposing GD from its strong C4ISR based established with BOWMAN. However in mid-2003 the U.K. decided to scrap the BAE/Alvis alliance, much to the chagrin of both companies. Alvis supremo Nick Prest had told BATTLESPACE during AUSA 2002 that he was well placed to prime FRES having made the Vickers acquisition.

It is likely that BAE may use its Alvis stake as a bargaining chip to retain some hold and input into FRES. However has the deal blasted away the final stage of the BAE plan to build a strong land systems business? What happens now to its AS90 and gun making business in Barrow? Will this be subsumed into the new Alvis in a sale? The company had a strong involvement in the TRACER/FSC program, cancelled by the US, but this also relied heavily on US technology.

It has been happening for at least ten years in the form of JSF, JTRS and FCS. The US government and industry saw a huge opportunity in that Europe was reluctant to invest in defence R&D and created three international projects, which, if successful, would create an international standard for defence products with the IPR vested in the US. Europe has tried to counter this with projects such as Eurofighter, A400M and Meteor to mention a few, but they have become bogged down in in-country fighting, penny pinching, lack of technical know-how and R&D and arrogance.

The field of armoured vehicles was ripe for rationalisation in the late 80’s and the MRAV project was supposed to create the new structure. But government’s failed to liaise properly with industry, underfunded the project and allowed the French and the Germans and then the U.K. to go their own ways, thus creating a huge opportunity for companies such as General Dynamics and United Defense of the US to mount their offensive. GD has been very successful picking up Santa Barabara, Steyr Puch and Mowag whilst UD took Bofors. All that is left are the two German companies, Rheinmetall Detec and Krauss-Maffei-Wegmann. The latter, 51 per cent owned by the Bode family and 49 per cent by Siemens, could well be the next morsel for GD. Siemens plans to shed its stake, which came with its acquisition of Mannesmann’s engineering and vehicle parts business and the ailing Giat and Panhard in France, which the Fr4ench government is rapidly restructuring. It is unlikely that the EU will block the GD alvis move given the small size of the acquisition and the fractured state of the European industry.

The FT put the matter in perspective by stating that, “By dithering too long, Europe has lost the chance of creating for its ground force defence equipment industry the cross-border partnership it has succeeded in developing for its aeronautical sector through EADS and is now talking of extending to the naval business. Once Alvis goes, Europe will essentially be left with the distressed, state-owned GIAT Industries in France and American Abrams, British Challenger and German Leopard tanks would all come under the GD umbrella, isolating even further the poor old capitulated to American firepower.”

So, the next move rests with Europe but it must work hard to build its own technology, just reinventing competition to the C-130 workhorse and AMRAAM is not enough, but has Europe got the heart or the money when social programmes an

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